Despite widespread volatility within the housing market and five consecutive years of home value declines, more than two in five (42 percent) of polled prospective homebuyers believe home values typically appreciate by seven percent a year, according to a recent survey by Zillow. This is an unrealistic expectation as, historically, home values in a normal market tend to appreciate by two to five percent annually. Zillow, with Ipsos, surveyed prospective homebuyers, asking basic questions about the homebuying process.
Despite the unrealistic expectations about home value appreciation, prospective homebuyer respondents seem fairly knowledgeable about the homebuying process, answering questions correctly more than half the time (65 percent). However, several important parts of the process confused them. Two in five (41 percent) buyers think they are required to buy private mortgage insurance (PMI) regardless of the amount of their downpayment.
Additionally, more than half of prospective homebuyers who were polled confuse appraisals and inspections. Fifty-six percent said the purpose of an appraisal was to determine if the home is in good condition, when in fact that is the purpose of an inspection.
"It's troubling that we're still in the midst of one of the worst housing recessions in history, and yet prospective buyers continue to have such high expectations for home value appreciation," said Dr. Stan Humphries, chief economist at Zillow. "It's great that buyers seem to have a fairly solid grasp of the home-buying process, but since this is one of the biggest financial decisions of most people's lives, it's even more important that they understand how that investment will appreciate after they sign the papers. Over-estimation of the appreciation potential will lead many to buy real estate when the time in which they plan to live in the house may make renting a better strategy."
Additional findings in the survey include:
►More than one-third (37 percent) of respondents believe buying homeowner's insurance is optional.
►Nearly half of those polled do not understand when they will actually own the home they intend to buy. Forty-seven percent said a prospective buyer owns a home after the purchase contract is signed. The purchase and sales agreement merely kicks off the closing phase, which can be a lengthy process.
►The majority (87 percent) of those polled know that closing costs are negotiable and can vary by bank and lender. Lender fees, like loan origination fees, administrative costs and other clerical fees, are typically the most negotiable in the homebuying process.
